Dear friends,

Welcome to the last 2019 issue of Mutual Fund Observer. Thanks for being here.

There’s rather a lot going on with this month’s issue whose theme might be “get some perspective while it’s still possible.” We’ll talk a bit about preparing for less hospitable markets. Vanguard’s Total Stock Market Index is up 27% YTD without a notable stumble along the way; it simply doesn’t get more hospitable. Since the economy, earnings and CPI didn’t grow by anywhere near that much, most of the gain comes from “multiple expansion,” the willingness of investors to pay more today than they did yesterday for the same thing. Vanguard itself is not Continue reading →

We’re near year’s end, decade’s end, and quite possibly the bull market’s end and the economic expansion’s end. It’s been easy to be a bad investor for the past 10 years: the market’s relentless rise, fueled by enormous amounts of fiscal (hello, trillion-dollar deficits!) and monetary (hello, negative real interest rates!) stimulus, had made it likely that even a badly constructed portfolio booked acceptable – perhaps even double-digit – returns.

Do not bet your future on a repeat of that happy pattern.

The Observer’s core beliefs are (1) valuations Continue reading →

What’s the worst that could happen? Managers’ own words on liquidity risks

Liquidity seems like an awfully esoteric concern, something akin to “coverage ratios” or “yield to call calculations.” In general, it feels like background noise.

Your fund managers disagree. New research estimates that 50% of high-yield funds and, more importantly, 15% of all fixed-income funds are vulnerable to a liquidity crunch. To understand what that means, you first need to understand that “liquidity” means. If you need to polish up your understanding of the term – or your ability to explain it to clients – start with the section entitled What’s Liquidity? If you’re rock solid on the concept, then jump ahead to Welcome to a Liquidity Crisis. Continue reading →

The mere fact that a belief is common and comfortable does not make it true. Accepting such beliefs makes you part of “the herd,” which is good only when the herd is thriving. But when the herd faces serious threats from hostile changes in their environment, whether it’s drought or wolves, the last thing you want is to have your survival tied tightly to the herd’s.

That holds true in investing, as well as in pastures.

Two such errors animate this month’s essay. First, there appears to be Continue reading →

(Made you look.)

(And I’m not the only one who has.)

Those are emblematic of stories designed to tease you into clicking, just to discover what the secret financial move or stock is. The web is Continue reading →

We’ve written in November and December about two excellent options for investors interested in small-cap funds with a dividend focus. Those are Crawford Small Cap Dividend (CDOFX) and North Star Dividend (NSDVX). What might interest you about such funds?

1. 1. Over the long term, small caps outperform large caps
   2. Over the long term, dividends bolster returns and dampen volatility
   3. There are hundreds of small stocks which pay dividends, but they’re mostly underfollowed and rarely included in passive ETFs / index funds

Readers who would like to Continue reading →